Four payment terms decide who waits for cash, and each step toward open account moves the risk to the seller
Under cash in advance the buyer pays before shipment. Under a letter of credit a bank commits to pay; under a documentary collection banks handle the documents but take no risk; under open account the seller ships first and is paid, typically, in 30, 60 or 90 days.
Supplier terms fund importers, and an early payment discount has a price to test against the cost of funds
Open account terms of 30, 60 or 90 days let an importer receive goods before paying. A discount for paying early can be turned into an annual rate and compared with the importer's own value of funds, the test the US Treasury sets for federal agencies.
Longer payment terms hold up when suppliers can get paid early on the buyer's credit
Payables finance lets a supplier on longer payment terms sell its approved invoice early, at a cost typically aligned with the buyer's credit, while the buyer still pays on the original due date.